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The Battle for the World Economy

A global economy, energized by technological change and unprecedented flows of people and money, collapses in the wake of a terrorist attack …. The year is 1914.

Worldwide war results, exhausting the resources of the great powers and convincing many that the economic system itself is to blame. From the ashes of the catastrophe, an intellectual and political struggle ignites between the powers of government and the forces of the marketplace, each determined to reinvent the world’s economic order.

Two individuals emerge whose ideas, shaped by very different experiences, will inform this debate and carry it forward. One is a brilliant, unconventional Englishman named John Maynard Keynes. The other is an outspoken émigré from ravaged Austria, Friedrich von Hayek.

But a worldwide depression holds the capitalist nations in its grip. In opposition to both Keynes and Hayek stand not only Hitler’s Third Reich but Stalin’s Soviet Union, schooled in the communist ideologies of Marx and Lenin and bent on obliterating the capitalist system altogether.

For more than half a century the battle of ideas will rage. From the totalitarian socialist systems to the fascist states, from the independent nations of the developing world to the mixed economies of Europe and the regulated capitalism of the United States, government planning will gradually take over the commanding heights.

But in the 1970s, with Keynesian theory at its height and communism fully entrenched, economic stagnation sets in on all sides. When a British grocer’s daughter and a former Hollywood actor become heads of state, they join forces around the ideas of Hayek, and new political and economic policies begin to transform the world.

2. The Agony of Reform

As the 1980s begin and the Cold War grinds on, the existing world order appears firmly in place. Yet beneath the surface powerful currents are carving away at the economic foundations.

Western democracies still struggle with deficits and inflation, while communism hides the failure of its command economy behind a facade of military might. In Latin America populist dictators strive to thwart foreign economic exploitation, piling up debt and igniting hyperinflation in the process. In India and Africa bureaucracies established to end poverty through scientific planning spawn black markets and corruption and stifle enterprise.

Worldwide, the strategies of government planning are failing to produce their intended results. From Bolivia and Peru to Poland and Russia, the free-market policies of Thatcher and Reagan are looked to as a possible blueprint for escape. One by one, economies in crisis adopt “shock therapy” — a rapid conversion to free-market capitalism.

As the command economies totter and collapse, privatization transfers economic power back into entrepreneurial hands, and whole societies go through wrenching change. For some the demands and opportunities of the market provide a longed for liberation. Others, lacking the means to adapt, see their security and livelihood swept away. In this new capitalist revolution enlightened enterprise and cynical exploitation thrive alike. The sum total of global wealth expands, but its unequal distribution increases, too, and economic regeneration exacts a high human price.

3. The New Rules of the Game

With communism discredited, more and more nations harness their fortunes to the global free-market. China, Southeast Asia, India, Eastern Europe, and Latin America all compete to attract the developed world’s investment capital, and tariff barriers fall. In the United States Republican and Democratic administrations both embrace unfettered globalization over the objections of organized labor.

When huge pension funds go hunting higher returns in emerging markets, enterprise flourishes where poverty once ruled, but risk grows, too. In Thailand the huge reservoir of available capital proves first a blessing, then a curse. Soon all Asia is engulfed in an economic crisis, and financial contagion spreads throughout the world, until Wall Street itself is threatened. A single global market is now the central economic reality. As the force of its effects is felt, popular unease grows. Is the system just too complex to be controlled, or is it an insiders’ game played at outsiders’ expense? New centers of opposition to globalization form and the debate turns violent over who will rewrite the rules.

Yet prosperity continues to spread with the expansion of trade, even as the gulf widens further between rich and poor. Imbalances too dangerous for the system to ignore now drive its stakeholders to devise new means to include the dispossessed lest, once again, terrorism and war destroy the stability of a deeply interconnected world.